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Just last month, Dean Barrett, Chad Keck and Will Chang announced their exit from USA Rugby’s board of directors. Add that to the announced exits of CEO Dan Payne and David Sternberg, chief executive of Rugby International Marketing, USA Rugby’s for-profit subsidiary, and five high-level officials have fled the humbled national governing body in eight weeks amidst news of RIM’s financial ruin.

Friday, a statement from USA Rugby's board to its congress summarizing a report detailing the catastrophic nature of RIM’s fiscal situation, the cause for the body count, came to light. After learning of $4.2 million in losses following USA Rugby’s February board meeting, USA Rugby’s congress put together a task force, including chair Mark Lambourne, outgoing CEO Dan Payne and outside legal and business counsel, to assess RIM’s viability as a company. The statement smeared further dark paint on an already bleak picture.

The purpose of this article is to be a one-stop-shop for those interested in what’s happened, how it happened, and what’s to come. It’ll look at the task force report, where USA Rugby is in the search for a new CEO and board, what potential pit falls may lay ahead, and finally some thoughts on how to move forward. Below the story is a timeline of stories, press releases and board minutes germane to the topic.

Task Force Report Statement
“RIM, as an ongoing concern, has no ability to successfully sustain itself as a business,” the report read. It also confirmed that The Rugby Channel, one of RIM’s properties, will either be sold or shut down, potentially by way of structured bankruptcy. Currently, FloSports is in negotiations to buy TRC. If it doesn’t, expect TRC to close its doors.

The statement parcels RIM’s assets into three different silos – TRC, events and the Rugby World Cup Sevens. Like TRC, the events business is not doing well.

“RIM has continued to experience challenges with its events business and has not met its targets on sponsorship revenue,” read the statement. “Poor decisions on locations and aggressive budgets have created numerous issues that the company is having to address to insure present obligations are met and is working extremely hard to insure these events are as successful as possible.”

Looming largest on RIM’s to-do list is staging a successful Sevens World Cup. Before that’s complete, though, the event side of the shop will host a test between Wales and South Africa at a likely barren RFK Stadium in Washington, D.C.

This game is reportedly in danger of not going off, though the union has issued a statement confirming its inevitability. Ticket sales are scarce and the venture looks like a sure loser, but RIM is contractually bound to pay three-quarters-of-a-million dollars each to both South Africa and Wales even if the balls are never inflated, so it’s likely more expensive to cancel the game than have it at this point.

The statement did paint a relatively optimistic picture for the World Cup Sevens, though there is work being done to shore up the event financially.

“There is the potential for this event to break even if current plans are executed and projections are met,” it says. “This will take a lot of work between now and the event.”

Presale for single-day tickets began Wednesday. Payne, in his new role as CEO of Rugby Americas, has been tasked with making the World Cup as big a success as possible.

It’s not without risk, though. USA Rugby owns RIM, and RIM is the legal guarantor of the World Cup Sevens, meaning should the event lose money, RIM is on the hook for it. But RIM is poor, so in the event RIM can’t cover losses, USA Rugby is trying to secure additional financial assistance from event partners to cover the gap.

If RIM were just an independent business in danger of shuttering its doors, it would be newsworthy. But given RIM is majority owned by USA Rugby, there is a real financial risk for the national governing body, making the potential impact far reaching.

“The immediate concern to USA Rugby’s business model is the risk of RIM failing to pay all or substantially all of its remaining 2018 licensing payments to USA Rugby,” the statement says.

RIM is scheduled to make payments to USA Rugby in June, September and December totaling more than $1 million. Whatever RIM can’t come up with, USA Rugby is left without. Next year, RIM is supposed to pay USA Rugby more than $1 million more. That, too, would appear to be in jeopardy.

“We are currently working with the RIM board to sustain as much of those payments as possible, but it is likely that at least some of those payments will need to be reduced as RIM negotiates its workout pathway with shareholders, creditors and other key partners. As the largest shareholder in RIM, it will be expected that USA Rugby will need to show flexibility in this area if we expect others to make financial concessions, so that RIM will continue as an ongoing operating concern.”

USA Rugby CEO/Board Search
With Robert Kimmitt and Rob King terming out, the lone at-large board member who will both start and finish the year as such is rookie Barbara O’Brien, confirmed last summer. That means five board seats are on offer, and every board member responsible for the existence, rise and fall of the RIM experiment will be gone, save arguably Jeremiah Johnson, the Congress rep to the board who has more than a year left on his term.

Effectively, the result will be a house cleaning, a drained swamp. Months from now, USA Rugby will have a new board and a new CEO. That much is for sure. The process by which it comes together is a little awkward. We need a CEO, which the board hires, but there really isn’t much of a board right now. First, USA Rugby’s nominating committee has to put names up for Congress to confirm.

Until they’re replaced, King and Kimmitt remain on the board. The nomination window for theirs and other open seats has been extended through the beginning of May. The next USA Rugby Congress meeting is set for September, at which time it would be reasonable to presume new board members will be confirmed.

That means the board can’t complete the CEO search process until at least September, leaving several months between the time Payne leaves his post and when it can be expectedly filled. Ross Young, former CEO of Atavus, will fill the void as interim.

Young was quietly hired by USA Rugby months ago when Rosie Spaulding, general manager for this summer’s World Cup Sevens, had to step away. Young held the same title through three 15s World Cups, 2003 in Australia, 2007 in France and 2011 in New Zealand. With the interim CEO tag, he’s a likely frontrunner to replace Payne long-term.

Once the board’s seated, hiring a new USA Rugby CEO becomes the priority. All the while, what’s left of the board and congress will be trying to figure out if RIM is to survive this as a company, and if so, what it looks like going forward.

The task force report also dove into that, saying USA Rugby and RIM are, “exploring all options to allow the company to stay in business. The intent of this work out is to allow the company to reorganized as a much smaller LLC over the next few months. The USA Rugby board, RIM board and members of both USA Rugby and RIM management are working diligently to not let RIM go out of business.”

How did we get here?
The origin story of RIM, created with the intention of raising outside capital to generate profitable returns for USA Rugby and other shareholders over and above what the union could do itself, is still filled with holes. Because of the board’s lack of detailed, published, reliable minutes from before Dan Payne’s reign, we’re left guessing. The first mention of RIM as even a concept in the board’s published minutes appears to be March, 2014. Five months later, it was essentially a done deal, with USA Rugby board members Keck, Brian McClenahan and Peter Seccia making up RIM’s initial board.

In late August, 2014, Congress was emailed to schedule an upcoming call to discuss what they’d find out was RIM. Days after that discussion, and without a formal or in-person meeting, presentation or question-and-answer session to properly vet what would end up being one of the biggest organizational and business decisions in the union’s life, congress members were emailed consent forms to vote to approve the creation of RIM. It passed.

In October, 2015, the board discussed the first sale of RIM equity to England’s RFU for $2 million. RIM would also sell equity to UK-based Chime Sports Management, the Harlequins and a handful of wealthy individuals. All told, USA Rugby sold 25-percent of RIM for $7.5 million.

Then-USA-Rugby-CEO Nigel Melville was supposed to leave his post and lead RIM, but he took a job with the RFU. Sternberg, who was originally brought on as a consultant, was trumpeted as the interim CEO in May of 2016. Payne was hired as USA Rugby’s chief executive two months later.

For the next 18 months, Payne would try to wrap his head around the RIM relationship and what it meant for USA Rugby, while navigating the $800,000 overspend he inherited from the high-performance department and the fallout of a bad kit sponsorship with BLK that cost the union north of an additional $1 million. And he did it all on a fixed income, because USA Rugby had signed its assets over to RIM in exchange for a licensing deal with a catawampus payout schedule.

So, in effect, Payne was hired to captain the Titanic after it hit the iceberg, left with no option but to refashion the deck chairs into additional lifeboats because the pompous, arrogant, out-of-touch architects of the whole ship didn’t factor in enough to begin with. Meanwhile, RIM was burning through most of the initial investment trying to get The Rugby Channel, an over-the-top streaming platform, off the ground. That’s like the Titanic’s architects poking holes in the boat in addition to the damage from the iceberg collision.

The failure of The Rugby Channel can’t be overstated. It was RIM’s only year-round business, and it was launched just in time to compete directly with over-the-top subscription offerings from media giants NBC and ESPN. It never stood a chance, and because it ate up so much of RIM’s start-up cash without ever kicking much back, neither did RIM. That USA Rugby’s and RIM’s leadership didn’t see this iceberg coming and abort much sooner is one of their biggest missteps.

Buried deep in the board minutes from November, 2015 is mention of an offer from IMG, the sports and entertainment behemoth, for majority ownership of The Rugby Channel and 10-percent stake in RIM as a whole. IMG was to bring ESPN to the table as a potential broadcast partner. RIM rejected it. Without knowing the exact numbers at play, it stands to reason current RIM decision makers might love nothing more than to go back in time and snatch that deal out of IMG’s hand, as IMG’s once-trumpeted partnership with USA Rugby for the college space bore no fruit and ESPN became a direct competitor in the rugby streaming space.

Even if we don’t have documented proof of RIM’s conception, nearly every anecdotal account during the research process indicates it was largely Chang’s brainchild. Nonetheless, through much of those lavishly expensive months during which RIM was napalming piles of cash at an alarming rate, USA Rugby chairman Will Chang showed a good face.

So did his complicit fellow board members and Sternberg. Chang even had the gall to spin his exit from the board as a retirement instead of what it effectively was – a dishonorable discharge. Sternberg’s exit presser included similarly vapid optimism.

Just two months before Sternberg fell on his own sword and Keck was first removed from his board seat on RIM and nearly voted out of his USA Rugby seat (which he’d eventually resign under pressure), they sat in a meeting room at the National Development Summit in Denver and told me they were “bullish” on RIM’s future success. Less than four months before Chang announced his “retirement”, he was publicly claiming RIM was worth $20-$30 million.

These claims were made just days before the February board meeting, from which the scope of RIM’s failures first became public. Such blatant, bold and intentional outward optimism to USA Rugby’s membership when RIM’s financial status must have already been well diagnosed as terminal is disingenuous at best and outright lying at worst. Those architects poking extra holes in the bottom of the Titanic while it’s already sinking? They were putting on a good face for the passengers at the exact same time, assuring them the ship was too big to sink.

The board has taken the bullets for its part. The really blood thirsty might still opine the fact that Chang gets to retire and not be forced to resign, or better yet, be recalled by Congress. I get that sentiment. This mess is as much Chang’s as it is anyone’s. Nigel Melville owns some responsibility, too – he helped conceive of and build the ship, though he was able to hop onto a much nicer vessel just as RIM nicked the iceberg. What’s that they say about rodents fleeing sinking ships?

Every other member of the board who’s served since 2014, excluding Barrett and O’Brien, needs to take a share, too. As does Congress, which was asleep at the wheel, evidenced by its approval of RIM without so much as an in-person discussion with the board. In one calendar year, Congress went from passing a vote of confidence in the board with a single dissenter to the majority of its body voting to remove Keck, the board member tasked with keeping a watchful eye over RIM. If that’s not sufficient evidence of Congress being suddenly jostled awake, I’m not sure what is.

The board is supposed to keep the national office and its employees humming along in the right direction. Congress is supposed to keep the board in check. And USA Rugby’s members are supposed to make up Congress. The board was too trusting of the old CEO, Congress too trusting of the board, and USA Rugby’s membership oblivious to the goings on of Congress. In that way, we all share in the disaster of RIM.

Who is Really Pulling the Strings?
The same week Payne announced his new role with World Rugby, its CEO, Brett Gosper, was in the States taking meetings with numerous dignitaries within the American rugby community. While a routine check-up on the ever-closer World Cup is the reason for Gosper’s visit, rest assured the future of USA Rugby was a hot topic.

“Both World Rugby and USA Rugby believe the RWC event must be successfully executed and represents an important strategic statement about the U.S. game for both parties,” read the task force report.

So one way or another, World Rugby is going to be involved. One of its own, Young, is the interim CEO. Whispers of a bailout are already being heard. If RIM’s non-payment of its licensing fee with USA Rugby comes to fruition, it could spell in-the-neighborhood of $2 million in missing income for the union heading into a World Cup year and Olympic qualification. World Rugby could potentially swoop in and make the pill easier to swallow by replacing some of or all the lost income.

The task force report mentioned USA Rugby was working with “event partners” to make up the gap left by RIM’s shortcomings. World Rugby fits that bill.

These are very interesting times for American rugby on a lot of levels. Not only are we experiencing unparalleled challenges from years of poor leadership, we are about to host our first World Cup ever in July, we’re heading into the only World Cup we’ve ever qualified so quickly for, and we’re attempting to punch our tickets to a second-straight Olympics.

Meanwhile, the Aviva Premiership has landed Stateside in the form of an annual match and a groundbreaking broadcast deal. The Pro 12 and Super Rugby have kicked the tires on expansion to the United States, and they both still seem keen on the idea. The world’s top international and club teams want to play here. The union has exited one extremely messy sanctioning agreement with a domestic pro league and is supporting another. Both the RFU and the Harlequins literally invested millions of dollars in RIM, hoping to squeeze out a return.

For as long as I can remember, the entire rugby world outside of our borders has been drunk in love with America’s sporting market. Like the lonely man in sweatpants becomes more convinced with every bottle that the stripper is really into him, the rugby world’s unhealthy infatuation with the sleeping giant is usually fueled by willful ignorance, to the point where facts don’t matter.

World Rugby’s announcers for the World Series used to be fond of referring to Eagle great Zack Test as an Oakland Raider, despite the fact his highest achievement in football was never playing a down as a walk-on at Oregon. I’ve played my fair share of the game Telephone, and I can’t fathom what transpired for one-year-walk-on-at-Oregon to turn into former-Oakland-Raider, but that’s how thick the ignorance runs, and the wildly untrue statement made it on the air on multiple occasions.

At the exact same time USA Rugby finds itself in organizational and financial crisis, the rest of the rugby world is sprinting to the precipice of “tapping the American sporting market in the name of rugby”, effectively racing to the first paycheck. World Rugby is going to want its cut, too. USA Rugby needs to keep its head on a swivel, trust frugally and make sure no wolves sneak in the door in the name of help.

The Way Forward
The swamp is effectively drained. How then, to refill it? As the star investor and entrepreneur on CNBC’s The Profit, Marcus Lemonis helps turnaround failed businesses. To do so, he focuses on the “three Ps – People, Process and Product.” If you look at USA Rugby through that lens, the people are the board, the national office led by the CEO, and Congress, which represents the membership, ranked in order of power to affect change with least resistance.

Those with the most power, the board, are gone or will be very soon. Same with the chief executives of USA Rugby and RIM. Several smaller warts have been removed from the national office, though a few remain. So there’s a nearly clean slate on the people side, and the product, rugby, has never been in question.

But the process is broken, too. Essentially, the board has too big a hand in seating itself, and many, including a growing number of congress members and the Golden Eagles, a group of deep-pocketed donors, demand it be changed. That would call for an amendment to USA Rugby’s bylaws, which requires board approval, adding to the chicken-and-egg predicament the union finds itself in. Expect noise about changing the process to be ongoing in the background even while the status quo plays out in the foreground.

One recommendation from the Golden Eagles has been to make board members raise or donate a minimum amount of money annually. This would disinterest highfalutin prospects enamored with the title but not too interested in getting their hands dirty, or at least it would prevent them from sitting on the board for years without USA Rugby benefiting in some way. This is common practice amongst non-profit boards.

Congress debated the concept, but ultimately decided against it. There’s already a fundraising arm in the USA Rugby Trust, which USA Rugby plans to bring under its umbrella, and it has its own board. We don’t want people to buy influence. We won’t be able to attract high quality talent with that requirement. For a combination of those stated reasons, a minimum financial requirement for board members has not been adopted.

To put it bluntly, that was a foolish move which should be reconsidered. Rugby in America is inexorably tied to numbers. How many were at practice? How many CIPPed? How many paid dues? How many refs do we have to cover how many games this weekend? Everyone needs more. USA Rugby’s board now does, too.

But like a high-performance team, USA Rugby’s board doesn’t just need warm bodies, it needs quality. If your club is wanting to field five teams, you need five hookers. But if you want to field just one championship team, you would be happy with two really good hookers. That’s where we are.

Just because we need numbers doesn’t mean we can afford to skimp on quality. And the way I judge quality might be a little different – the first quality one must possess to get on my board is a clear love of the game. NFL coaches and general managers will talk these days about how much a prospect loves football, because in order to do what it takes to become a really good teammate on a really good team, you have to love it. Otherwise, you won’t make the sacrifice.

The next quality is trust. Does this person have a track record of doing what they say? Any traces of over-promising and under-delivering? What else is on this person’s plate? Can they produce the workload we need out of them? We have to be able to trust why a person wants to be on the board and whether or not they’re likely to put in the work if seated.

Then comes competency. Once we’ve ticked the trust and ability-to-commit-time boxes, that’s when I’d look at the resume. We have been duped before by starting the process of elimination with the “past work experience” section. We’ve hired McDonald’s execs who never brought McDonald’s to the table. We’ve hired advertising gurus who failed to bring us adequate sponsors. We’ve hired people who skip conference calls and meetings and shirk responsibility.

Fancy degrees and fancy resumes have landed us precisely where we are. To fix it, flip the requirements on their head. Once you have people you can trust to do the right things for the right reasons, pick your flavor.

Requiring a minimum financial commitment helps assure someone is there for the right reasons and willing to do the work – at least in the same way those progressive grocers charge for plastic bags now. The idea is to reduce the amount of plastic bags used by encouraging shoppers to bring their own sustainable bags. Noble cause, but people often just pay the dime for the plastic bag. What we’d like to get out of our board members are the dime, time and some great business savvy. If we don’t get the latter two, at least we’ll have recouped the dime. Right now, USA Rugby can use all the dimes it can find.

We are in a massive financial hole because we placed our trust in the wrong people. While we’re going to need assistance to get out of said hole, be wary of anyone too quick to extend a ladder, as there may be strings attached. If someone comes to the party to help dig you out, they need to bring their own shovel, because you’re stuck in a hole and can’t provide them with one. And if they bail early, at least they’ll have contributed to the cause in some way.

If you need a flow chart or an in-depth explanation to understand someone’s motivation for helping, probably best to move on.

It’s also imperative congress changes. It needs to become truly representative. Right now, the path to getting on congress is different for every sector, it’s translucent at best, and it’s not ideally democratic.

People, process and product. Product is great – don’t touch it. We have chased out the old people who got us here, and before we usher in the new people who can get us where we want to be, we would be wise to fix the process by which we pick those people.

Comments

Joseph Smith II 05.07.18

Thank you Pat, for a very clear report on what happened. As one of the old guard I am very disappointed in this and would be glad to help anyway I can. I know from prior conversations with Dan Payne that the financial constraints you listed are real and extremely burdensome. Given that I am not sure about keeping RIM but do not know enough to say what other options may exist.
I do agree we need to find people passionate about the sport and those that will help move it forward through that passion.